Dating app Bumble (NASDAQ:BMBL) is a key competitor to the ubiquitous Tinder app. But unlike Tinder, which is typically geared toward more casual dating scenarios, some 85% of Bumble users say they are looking for committed relationships.
The app is also somewhat unique in that it only allows women to send the first message once two users have matched.
While quite innovative in terms of its approach to online dating, Bumble is also a publicly traded company and, unfortunately for shareholders, it has shed 50% of its value in the past year.
Can Bumble recover, or have investors fallen out of love with the online matchmaking giant?
What’s Making Bumble Tumble?
The biggest long-term problem for Bumble has been its sharp turn into the red.
For the full year of 2021, Bumble turned a profit of $310 million. By the end of 2022, the company had lost $80 million on a trailing 12-month basis.
While Q4 2023 results still haven’t been released, the trailing twelve month loss as of Q3 had expanded to $89 million.
For a company that once showed a great deal of promise in generating earnings, this reversal into losing territory has been a major blow.
Bumble has also seen the departure of several leading executives, a development which has shaken investor confidence.
Chief among these executives was CEO and co-founder Whitney Wolfe Herd, who left in November. While Wolf Herde remains as the executive chair of the company, the transfer of the leadership position to former Slack CEO Lidiane Jones drove shares down 10% in a single session of trading. The company also lost its president, Tariq Shaukat, last year.
Revenue Growth Is A Bright Spot
Although net income has been falling, Bumble has continued to impress on the top line. The company’s revenues have increased in every quarter since it went public.
During Bumble’s first reporting period in Q1 2020, it generated just $119 million in total revenue. By Q3 2023, that number had risen to $276 million.
Even more encouraging is the fact that Bumble has yet to report year-over-year revenue growth below 15%.
An interesting side effect of growing revenues amid falling earnings and share prices is a marked contraction in Bumble’s price-to-sales ratio. This metric, often used to evaluate high-growth companies, may be relevant in Bumble’s case due to the company’s current lack of meaningful earnings.
At the end of 2022, the company traded at 3.3x sales. In Q3, this number had shrunk to 2.0. Today, Bumble’s price-to-sales sits at 2.1x, a fairly attractive ratio for a company that’s still growing at a healthy pace.
BMBL’s Recent Performance
In Q3, revenue increased 18% year-over-year to its record of $276 million. Critically, the number of paying users on the app grew 25% to 2.6 million. This growth in paid subscribers is key, as it will likely be the largest driver for Bumble’s revenues and earnings going forward. On average, paid Bumble users contributed $28.38 apiece to the company’s revenues.
Though Bumble is still losing money on a trailing 12-month basis, it’s worth noting that it has clawed its way back to narrow profitability in the most recent quarters.
For Q3, the company’s net income was $23.1 million. This move back to the right side of profitability could be critical, as the company is finally in a position to capitalize on its sizable revenues.
Bumble Vs Tinder
Despite its earnings struggles, Bumble remains a hallmark of the online dating market. Last year, the app received over 755,000 monthly downloads. Only Tinder outperformed Bumble by this metric with 928,000 monthly downloads.
While the two companies certainly do compete, it’s interesting to note that about 40% of people who use dating apps have profiles on two or more apps simultaneously. As such, using Tinder doesn’t necessarily keep customers away from its close-running competitor.
From an investor perspective, though, it’s worth considering that Tinder and several of Bumble’s smaller competitors are all under the umbrella of the Match Group (NASDAQ:MTCH).
At 3.1x sales, Match Group trades at a bit larger premium to its total revenues. However, the stock is priced at a relatively modest 17.5 times forward earnings, making it worth investor consideration in its own right.
Online Dating Is Still Going Strong
Clearly, Bumble is in a decent second-place position within its industry. It’s also worth acknowledging the strength of that industry as a whole. Through 2030, online dating as a market is expected to grow at a compounded annual rate of 7.4%.
Dating apps have also become a massive element of day-to-day life for many American consumers. Market research shows that 42% of 18-24 year olds who use dating apps check them more than once a day, a number that jumps to 55% among 25-34 year olds and 58% among 35-44 year olds.
This level of engagement is likely to benefit both the broader industry and Bumble long-term.
Share Buyback Is Perplexing
One of the most glaring concerns associated with Bumble is its aggressive share repurchase program. While share buybacks are generally very positive for investors, Bumble deployed $300 million to repurchase shares in Q3 alone.
Considering the rate at which the company is growing and its slim net income, it is somewhat perplexing that the Board authorized such a broad buyback program.
Another concern is Bumble’s debt-to-equity ratio of 0.42, which isn’t excessive by any means, but Match Group carries no long-term debt. As such, Bumble is somewhat financially riskier than its closest competitor.
Will Bumble Stock Rebound?
Bumble stock is likely to rebound over the medium to long-term as higher revenues translate to more profits.
The company’s attractive price-to-sales ratio, combined with the fact that it has regained at least modest profitability, will probably attract renewed investor attention if current trends continue.
This view is largely supported by Wall Street analysts, who value BMBL shares at a median target price of $17. To reach this price, Bumble needs to gain 22% over the coming 12 months.
Ultimately, Match Group’s family of apps, led by Tinder, will likely remain the dominant force in online dating. Due to the nature of the market, though, there’s room for more than one major player.
Bumble’s popularity appears sufficient to keep it afloat, and organic growth in online dating will likely allow the company to continue growing and gradually appreciating in value.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.